Gross worker and job flows in a transition economy: an analysis of Estonia

In this paper, we study the labor market flows of one of the rapid reformers among the transition economies: Estonia. Using a unique dataset that permits measurement of job, worker and unemployment flows, we document and analyze the pace of job and worker reallocation over the period of the most dramatic market reforms. In 1989, the job and unemployment flow rates were essentially zero and the rate of worker reallocation was positive, but primarily reflected workers shuffling among an existing allocation of jobs. By the mid-1990s, roughly one in 10 jobs was being created every year and one in 10 jobs was being destroyed every year with large accompanying increases in worker and unemployment flows. This surge in reallocation began in an unbalanced manner with job destruction (disproportionately from large, state businesses) far outpacing job creation. The unbalanced restructuring led to a rapid rise in unemployment. However, by the mid-1990s, very high rates of job creation (disproportionately from small, private businesses) yielded a roughly balanced pattern of restructuring. Direct job-to-job flows increased dramatically as well. The surge in labor market flows in Estonia contrasts sharply with the experience of other transition economies that pursued more gradual reforms. (C) 2002 Elsevier Science B.V. All rights reserved.